Scot indicted in Twitter stock fraud scheme

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A Wall Street street sign is framed by a giant American flag hanging on the facade of the New York Stock Exchange, Tuesday, Sept. 8, 2015. U.S. stocks are opening solidly higher as traders come back from the Labor Day holiday. (AP Photo/Mary Altaffer)

In a rare law enforcement crackdown on the use of social media to manipulate the stock market, federal prosecutors in San Francisco on Wednesday charged a Scottish citizen with securities fraud for sending bogus business information on Twitter to profit in stock trading.

The U.S. Securities and Exchange Commission also filed civil allegations against James Alan Craig, a 62-year-old citizen of Dunragit, Scotland accused of sending out tweets with misleading information about two publicly-traded companies to influence their stock value. The tweets eventually cost stockholders about $1.6 million in losses, according to federal law enforcement officials.

“This prosecution makes clear that we will find and prosecute those who commit fraud on our stock exchanges, by any means, no matter where they reside,” acting U.S. Attorney Brian Stretch said in a statement.

Craig allegedly set up a Twitter account with the handle “@Mudd1Waters” in 2013, making his social media profile appear as if it was a legitimate market research firm, according to prosecutors and the SEC.

Over about a week period, Craig put out information in tweets on a Bay Area sound technology company, Audience, and a Washington-based biotech firm, Sarepta, that was deliberately designed to depress the value of the companies in order to profit later through his own stock sales, the indictment alleges.

Craig, the indictment alleges, used his girlfriend’s trade account to buy depressed shares in the companies after tweeting the misleading information, then turned around and made further trades to capitalize on the timing as the tweets caused the value to tumble.

In one instance, Craig tweeted that Audience was under federal investigation. Ironically, the SEC court documents say Craig made scant profit off his scheme, but it nevertheless was costly to investors in the two companies.

Craig presumably must be extradited to the United States to face the charges, which could land in him federal prison for at least several years.

Howard Mintz covers legal affairs. Contact him at 408-286-0236 or follow him at Twitter.com/hmintz